Nimesh is bullish on Indian markets which he describes as a coiled spring, waiting to spring up. The market which should be getting concerned he says is US – where the economy is heading into stagflation.
Domestic consumption – the mainstay of our economy – is getting multiple catalysts including income tax breaks, proposed GST rationalization, interest rate cuts and the forthcoming 8th Pay Commission implementation.
Good monsoon coverage augurs well for sustained rural consumption growth which enables the overall consumption theme to move ahead firing on both engines – rural and urban.
Bajaj Finserv’s new Small Cap Fund was launched in June in the wake of a serious correction in that segment which brought many stocks into buy zone. The AMC has now published the first portfolio of this new fund, which is very well diversified – 90 stocks covering 28 industries, with the largest positions being 2.5% of portfolio.
Nimesh says this diversification strategy helps address liquidity concerns that arise when small cap funds take concentrated bets in a few stocks. It also serves to limit drawdowns and smoothen the investor’s journey.
Another factor that accounts for a 90 stock portfolio is a decision to stay true to label – meaning the fund manager will not use the residual 35% allocation to buy stability of large cap stocks. A pure small cap fund can reduce volatility best by a widely diversified portfolio of small cap stocks.
While the portfolio is well diversified at a stock level, the fund manager has taken 3 clear sector calls which account for half the portfolio: 20% BFSI, 16% industrials and 16% consumer discretionary.
While the fund sports a PE of 33, its portfolio stocks’ collective earnings growth is expected to be around 35% - thus bringing PEG to less than 1.
Nimesh says concentrated portfolios make sense in the large caps space where you need to build active share (which is what delivers alpha) through large bets in high conviction stocks. In small caps, there are other smart ways of building active share since the consideration set is around 900 stocks.